Employers warned against pensions inducements

The Pensions Regulator has said that employers should not apply “improper” pressure to persuade members to move from one pension scheme to another.

David Norgrove, the regulator’s chairman, was addressing a conference of the National Association of Pension Funds (NAPF) when he identified a number of tactics used by employers to tempt employees to shift from final salary schemes to defined contribution schemes.

The tactics include offers to pay for pensions advice provided that the advice is taken; constant emails and phone calls; suggestions that the future of the final salary scheme is uncertain and that members should consider transferring; and inferences that members need to make a quick decision on transferring in order to take advantage of a beneficial offer.

Although Mr Norgrove conceded that such tactics were legal in the strictest sense, he said that they might well contravene the rules as laid down by the Financial Services Authority (FSA).

Mr Norgove said: “Many members are likely to be strongly influenced in their decision to transfer by the immediate prospect of receiving an attractive amount of cash – or by an offer which contrasts an ‘enhanced’ transfer value with a pension from an under-funded scheme.

“What is not often not explained or understood is that the term ‘enhanced’ may be misleading or misunderstood – as the sum being enhanced may first have been heavily discounted. Or that they are moving from a defined benefit scheme backed by a sponsor to a defined contribution scheme where they themselves bear all the risks.”